Will Rupee Fall Further? (Pic: AI)
The Indian rupee may continue to remain under pressure in the coming months as weak capital inflows, rising crude oil prices, growing import dependence, and a widening current account deficit weigh heavily on the currency, according to Devendra Pant, Chief Economist at India Ratings and Research. Speaking to ANI on Friday, Pant said foreign capital inflows into India have slowed significantly, while portfolio investors are increasingly moving funds to markets offering better returns. According to him, this mismatch between lower inflows and rising import bills is creating persistent pressure on the rupee.
“I will not say capital inflows have dried up, they have reduced significantly. There is an outflow from your portfolio investments,” Pant told ANI.
Pant explained that India remains heavily dependent on imports for several critical sectors, including crude oil, edible oil, pulses, and electronic goods. Since India still lacks large-scale semiconductor and electronic component manufacturing capabilities, the country continues to spend heavily on imports. He noted that while India earns strong revenues through software exports, remittances, and services exports, these inflows are still insufficient to fully offset the country’s merchandise trade deficit.
“Because of all these factors put together, we are seeing a situation where the currency is continuously under pressure,” Pant said.
The economist highlighted that rising crude oil prices remain one of the biggest risks for India’s external stability. According to Pant, every USD 10 per barrel increase in crude oil prices widens India’s current account deficit by nearly USD 16.7 billion. India imported crude oil and crude products worth nearly USD 100 billion during the last fiscal year. At the same time, gold imports stood at around USD 72 billion, adding further pressure on the country’s import bill. “Gold does not have any economic value. It is more as an asset class. Most of it is lying in bank lockers,” Pant said while explaining the government’s tighter rules and higher import duties on gold.
Pant also warned that fuel prices in India may continue rising if global crude oil prices remain elevated. He noted that the government had earlier reduced excise duties on petrol and diesel by nearly ₹10 per litre to protect consumers, absorbing an estimated fiscal impact of ₹1.7 lakh crore. Oil marketing companies had also absorbed part of the losses temporarily. However, rising crude oil prices eventually forced a ₹3 per litre hike in petrol and diesel prices, along with a ₹2 per kg increase in CNG rates. “Further rise cannot be ruled out if oil remains elevated,” Pant said.
According to Pant, higher crude oil prices and partial pass-through into retail fuel prices could once again push inflation upward. While India Ratings expects inflation to remain near 4 per cent, he warned that subsidies on fertilisers and fuel may increase the fiscal burden on the government. Pant also cautioned that weaker real wage growth and pressure on urban consumption demand could affect India’s broader economic growth outlook. On agriculture, he said the progress and distribution of the monsoon during July and early August would be more critical for the upcoming Kharif season than fertiliser shortages.
(This article has all the inputs taken from ANI)
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